Polls to decide Britain’s status in the European Union (EU) open today.

The term ‘Brexit’ is being tossed around but do you know what it means?

We explain ever minute detail about this referendum that you must know.

What is Brexit?

‘Brexit’ or British exit, refers to the possibility of Britain leaving the European Union’s 28-state membership.

The Britain, EU relationship

Britain joined the European Community in 1973, which comprised of 6 member states at the time.

After the formation of the European Union in 1993, the ‘Euro’ was formally introduced in Britain in the year 2002 but till date the British government has had aversions to being a part of the EU.

A report by A. K. Capital Services Ltd stated that Britain is the second largest country in terms of GDP and contributes to nearly 17.56% of the European Union’s total GDP.

The report also stated that in terms of trade, UK’s exports to the EU constituted 47% of its total exports in April 2016.

The EU referendum

The in-out referendum mentioned earlier is a vote through which a consensus is arrived at after votes are placed in favour or against Britain’s exit from the EU.

A vote to leave the European Union on June 23 would indicate UK’s relationship with other members of the EU.

BBC reported that the simple question will be worded as, "Should the United Kingdom remain a member of the European Union or leave the European Union?"

Why is the referendum being held?

The UK Prime Minister David Cameron had committed to holding a referendum on EU membership as part of his election mandate set out in 2015, a report by HDFC on Brexit stated.

The commitment was made to negotiate new terms with the EU specifically related to labour laws, immigrations laws, rules on immigrant worker remittances, migrant welfare payments and to safe-guard the UK economy’s large financial services industry.

The UK PM did re-negotiate terms with the EU in early 2016 and has now offered these new terms to the UK public to vote on whether they want to accept them and subsequently remain part of the EU or whether they want to exit.

The results of this vote will be known on June 24, at approximately 12:30 pm IST.

What is the procedure to vote in the referendum?

Article 50 of the Lisbon treaty suggests that the UK government will have to first notify the EU Council (Heads of State and Government) of its intention, the HDFC report stated.

The Council will then have to lay down guidelines for the negotiations process and negotiate and exit the treaty. New arrangements to trade, labour laws and financial sector laws will have to be re-negotiated.

The exit can take place once the re-negotiated terms are passed by a qualified majority of the EU Council. There is a two-year negotiation period that has been provided for. However, the negotiation period can be extended if required.

What changes if Britain exits EU?

Majority of the studies on economic impact have indicated that Brexit will have negative effect on UK’s GDP.

A report by Trade Union Congress (TUC) warns that the economic impact of Brexit could lower average weekly wages by £38 (CAD$70) by 2030, as now the EU membership protects the worker’s rights to health and medical aspects.

Britain could be looking at restriction in capital flows, downward trends in its real estate market and political upheavals such as that of the Scottish referendum of 2014, A.K Capital’s report suggested.

Britain could be looking at political uncertainty, trade prospects could suffer along with FDI flows becoming passive.

Britain’s argument for leaving is that they have been contributing significantly to the EU (approximately 10

What changes if Brexit does not occur?

A vote to remain in the EU would mean a rebound for the British currency, Great Britain Pound (GBP) as trading relationship with the EU will stabilize.

The HDFC report stated that improving growth prospects could force investors to re-price tighter monetary policy with an initial rate hike likely in 2017 rather than in 2020 as is currently priced in.

Further the report added, global risky assets that have been responding primarily to opinion polls on ‘Brexit’ over the last fortnight could see a relief rally.

The HDFC report stated that the most likely outcome is a ‘soft-Brexit’ which is simpler rather than a ‘hard-Brexit’ scenario.

A soft-Brexit scenario includes the UK making minor contributions to the EU budget and complying with some of the EU regulations.

A hard-Brexit scenario means UK will likely lose complete access to the EU single market at the end of two years of negotiations. Trade tariffs between the EU and the UK would become compatible with WTO norms.

Given the strong trade and financial linkages, it is in the interests of both the UK and EU policymakers to ensure that an eventual exit is neither complicated nor messy, the report added.